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SAN ANTONIO (U.S. Global Investors) - There was a strong reaction on Tuesday to the elevated debt crisisin Europe, with commodities and equities being indiscriminatelysold. Gold fell 3 percent this week, losing its safe haven statusas the dollar grew stronger and the 10-year government note headedlower. he markets generally overreact to negative news, however, investorsshould keep in mind gold's normal monthly historical volatility.Throughout the past 20 years of monthly returns, the precious metalgenerally increased only 0.5 percent in May, and has historicallydeclined in June and July. Facts don't thwart the short-term pain, yet as contrarian investorBaron Rothschild said, "the time to buy is when there's blood inthe streets." Here are five reasons we believe today's sell-offsets up a buying opportunity for gold: It is precisely the debt strangling the eurozone which will drivegold demand over the longer term. The side effect to the abundanceof printing by central banks in the U.S., Europe, Japan and Englandis bloated balance sheets amounting to nearly $8 trillion. This isdouble the amount that it was only three and a half years ago. Several developed markets have negative real interest rates andthese rates are anticipated to remain negative for years to come.Historically, when the inflationary rate is greater than thecurrent short-term interest rate, gold prices rose. Emerging market central banks continued their gold buying spree inMarch. UBS Investment Research says that Mexico bought 16.8 tons,Russia bought 15.6 tons and Turkey added 11.5 tons. Additionalsmall purchases were made by Tajikistan, Kazakhstan and Belarus. Wewrote a few months ago that central banks have begun accumulating gold reserves since theFederal Reserve cut interest rates in 2007, and HSBC GlobalResearch expects this buying trend to continue for another fiveyears. In March, China's gold shipments grew to 62.9 tons, which is thethird largest volume of gold in a decade from Hong Kong to themainland, according to UBS. With ongoing rising demand, China may overtake India this year as the world's largest gold buyer. India's government abolished the excise duty on gold jewelry. Thiswas one of the reasons for the jewelers' strike, which drove gold imports to decrease 55 percent in India a few months back. Getting rid of the tax shouldencourage the restocking of gold and bring Indian gold buyers backto the market. UBS reported on May 9 that Indian buying onyesterday's dip was nearly twice the average daily volume and the"strongest since April 17." Over the past decade, these Fear Trade and Love Trade drivers havespurred gold higher, even as the yellow metal experiencedshort-term corrections along the way. Only hindsight could show howthese corrections set up buying opportunities. Frank Holmes is the CEO and CIO at US Global Investors SUBSCRIBE to Mineweb.com's free daily newsletter now. The e-commerce company in China offers quality products such as China Plastic Injection Mould , Custom Plastic Containers Manufacturer, and more. For more , please visit Plastic Electronic Enclosures today!
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